It’s a fate you wouldn’t wish on anyone, much less your grandmother, but people like Bonnie Madden fall victim to life insurance scams every day.
Madden, 82, of Port Richey, Fla., liquidated her existing investments to purchase two annuities which could not be cashed out for 10 and 15 years respectively without paying a severe financial penalty. The 2006 transactions generated $52,355 in commissions for her insurance agent. But Madden was unable to pay the premium on her inflated policy and would have lost nearly $300,000 of her life savings if state regulators had not arrested the agent and recovered her money.
Florida regulators say her agent engaged in a practice known as "twisting" when he falsely inflated Madden's net worth and converted her existing annuities into one annuity policy with a different company in order to generate his commission.
Life insurance scams such as the one inflicted on Madden are sweeping the nation as state regulators report tens of thousands of complaints from consumers. Particularly vulnerable are seniors who may have lost some of their nest eggs in the economic downturn and are prey to unscrupulous insurance agents who promise to make them whole.(Don’t miss this MainStreet story about four life insurance myths.)
Florida’s Chief Finance Officer Alex Sink said the number of complaints from Florida seniors about annuity sales has nearly quadrupled in the past three years. Sink said investigators have opened nearly 500 administrative cases on financial fraud involving seniors, with approximately 70% of cases related to annuity and life insurance transactions.
“While the majority of annuities are sold by professionals, some predatory agents are misrepresenting investments to our seniors and selling products that are completely unsuitable for older Floridians,’’ said Sink.
Sometimes, regulators are finding the insurance company at fault.